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To: SupplySider

What would prevent oil producers from bidding up their own product thru frontmen, aka. speculators? And, what prevents those same producers from manipulating the news in order to manufacture a climate of uncertainty? A sabre rattled here, a pipeline blown up there...


168 posted on 06/02/2007 1:06:16 PM PDT by gas0linealley
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To: gas0linealley
What would prevent oil producers from bidding up their own product thru frontmen, aka. speculators?

Markets like oil are too big to be manipulated easily. If Shell sends a guy into the crude oil pit in New York to buy futures to boost the price, it might well have an effect for a few moments or even a few minutes, or, very rarely, hours. But other market participants will recognize in due time that the price is too high. They will sell, driving the price back down.

That's what is so great about the futures markets. What used to be back room deals are now public events with thousands of observers all over the world keeping things honest.

208 posted on 06/03/2007 7:55:42 AM PDT by SupplySider
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To: gas0linealley
And, what prevents those same producers from manipulating the news in order to manufacture a climate of uncertainty? A sabre rattled here, a pipeline blown up there...

I'm sure that kind of thing goes on, but again, the effects would be temporary. As thousands of market participants around the world react to news and rumors, the true price level will emerge. The moment it is clear that the news is false, traders will be shorting the futures and punishing those who bought erroneously.

The antidote to shady dealing is more transparent and liquid markets, more and better financial instruments, more speculators, and better, cheaper, and more widely disseminated financial information.

As an aside, I think T.Bond traders, sometimes called the bond vigilantes, are a major factor in keeping inflation low. These days, if the US government or the Fed hints at adopting inflationary policies, within moments traders around the world start dumping treasury securities and driving up interest rates, ruining the game for the politicians.

In case you haven't noticed, not only do I not worry about speculators, I am an enthusiatic fan of them. May they all get rich!

210 posted on 06/03/2007 8:08:57 AM PDT by SupplySider
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